Munoz Company, which produces and sells a small digital clock, bases its pricing strategy on a 20 percent markup on total cost. Based on annual production costs for 20,000 units of product, computations for the sales price per clock follow:

Unit-level costs

$

440,000

Fixed costs

60,000

Total cost (a)

500,000

Markup (a 0.20)

100,000

Total sales (b)

$

600,000

Sales price per unit (b 20,000)

$

30

Munoz has excess capacity and receives a special order for 7,000 clocks for $25 each. Calculate the contribution margin per unit. Based on this, should Munoz accept the special order?

Contribution margin per unit
Should Munoz accept the special order?

Prepare a contribution margin income statement for the special order.

MUNOZ COMPANY
Contribution Margin Income Statement
Incremental revenue
Variable costs
Contribution to profit